Australian Property Market is “Recovering”


Your usual editor, Dan Denning is on the road up in the big smoke of Sydney. So for today only your guest editor has made the move upstairs at the Old Hat Factory to do some reckoning.

In fact, it’s pretty good timing. In yesterday’s Money Morning we opened a proverbial Pandora’s box of vipers on our readers by bringing up the subject of ‘climate change.’ You can read it online now if you so wish by clicking here.

But for today’s reckoning there’s another subject that we’ve been pumping away at for some time, and which Dan has also challenged head on here.

Of course, I mean housing.

You’d think after nearly two years of credit crunching the bureaucratic boffins would have surprised us all and developed some common sense.

That was probably a little too much to ask for.

So perhaps it isn’t any surprise that according to yesterday’s Washington Post, “US Considers Remaking Mortgage Giants.”

The story states:

“The Obama administration is considering an overhaul of Fannie Mae and Freddie Mac that would strip the mortgage finance giants of hundreds of billions of dollars in trouble loans and create a new structure to support the home-loan market.”

To be honest, it’s almost not worth commenting on. Is it really possible that these supposedly educated public servants and politicians are acting naively? Is it really possible that they haven’t considered the consequences of their actions?

Of course not.

They know exactly what they’re doing. It’s why the term ‘unintended consequences’ has become a misnomer.

It is the consequences that are unintended – they are fully known in advance – it is the timing of the consequences that the pollies are getting wrong.

Their goal isn’t to stop a housing boom followed by a housing bust. Their goal is to try and make sure it doesn’t happen on their watch. The vagaries of the election cycle has given Obama a free kick.

Still only seven months into the job he can easily blame everyone else – Bush, free markets (laugh!) – and claim that everyone else has handled things wrong and that his solution is the only one to ‘cure’ the supposedly broken free-market.

Of course, Obama’s policies are no different to any other meddling politician. There’s no point in just singling out presidents Hoover, FDR, Nixon and Bush Minor, they’ve all had their fingers in the till.

Every president at least since Hoover (and maybe before) has either meddled to help a boom, or meddled to help a bust. Sometimes they’ve done both… simultaneously – ie. Obama.

But if you think you’ve seen the worst of the housing slump. Think again.

According to a report from Reuters, “The percentage of US homeowners who owe more than their house is worth will nearly double to 48 percent in 2011 from 26 percent at the end of March.”

The statement was based on a report from Deutsche Bank. But get this, “We project the next phase of the housing decline will have a far greater impact on prime borrowers.”

You’ve seen the charts already that show the next wave of adjustable-rate mortgages resetting over the next two years. When that happens in the prime as well as sub prime market, the last twelve months will look like a teddy bears picnic compared to the next slump.

That the Australian housing market is “recovering” is a cause for even more concern.

As we said at the ‘Australia in the Red’ debt summit, “recovering from what?” For something to recover you generally need to show symptoms of sickness. So far all the Australian property market has shown is a couple of spots.

But these ‘spots’ are potentially hiding something much, much worse. The fact that we are reading so many news stories and even emails coming into the Money Morning mailbag telling us that property doubles in value every seven years is concerning.

We’re also told that the Australian property market is different to the US and the UK, and that Australians have a ‘deep desire’ to own their own home.

That these subjective arguments are passed off as fact should be seen as the biggest sign yet that property is about to burst.

It reminds us very clearly of the comments from financial planners and fund managers who used to claim that share prices ‘always go up.’ That argument has looked a little less convincing over the last ten-year bear market.

Just as share prices have stagnated for ten years despite boom and bust periods, why shouldn’t property prices do the same? There is absolutely no logical reason to suggest that property prices always go up. It isn’t possible.

The only reason property prices have been able to sustain the astronomic rise of the last thirty years is down to one reason, and one reason alone…

Government interference. You can argue that slack lending standards and a rising population are all to blame, but they are only as a consequence of government meddling.

The fact is the Australian property market is the most unfree market in Australia. At every step of the property buying/selling process there is interference from either federal, state or local governments.

Each level of interference has a consequence on either supply, demand or price.

It is this distortion that has caused the property market to reach bubble proportions. And it is the continuance of these distortions that will guarantee property price slump in the near future.


Kris Sayce
for The Daily Reckoning Australia

Kris Sayce
Kris Sayce, dubbed the ‘Jeremy Clarkson of Australian finance’, began as a London finance broker specialising in small-cap stock analysis on London’s Alternative Investment Market (AIM). Kris then spent several years at one of Australia's leading wealth management firms. A fully accredited advisor in shares, options, warrants and foreign-exchange investments, Kris was instrumental in helping to establish the Australian version of the Daily Reckoning e-newsletter in 2005. He is currently the Publisher, Investment Director and Editor in Chief of Australia's most outspoken financial news service — Money Morning.
Kris Sayce

Latest posts by Kris Sayce (see all)




    10 Steps to a Housing Disaster

    Starting with only 21 million people and a giant island with 100 acres of land per person, how could we engineer some of the least affordable housing on the planet?

    Here is a recipe to make housing unaffordable:


    Divide the island into 7 states and create one giant city per state. Force almost all the people into the giant cities with policies such as:

    * All business zoned in the centre of the city
    * All government departments must be in the capital city
    * Non-giant cities given terrible infrastructure

    With decent transport this gives 7 areas with 40km radius, approximately 1700 square metres per person. Still too much land to create a crisis!


    Neglect the transportation system so that it is not practical to live more than 20km from the city centre. This cuts us back to 400 square metres per person. Still plenty of space on average, but the largest cities will need some high-rise housing to get by.

    Step 3 – CHOKE HIGH-RISE

    Refuse permission for high-rise in many cases. Old suburbs must be preserved for the old people who still live there. No extra housing to be built for young families.

    Step 4 – CHOKE LOW-RISE

    Much land within range of the city to be kept off the market in the form of national parks, government land and farms without permission to subdivide. If you have 5 acre or 25 acre farms within reach of CBD then declare the area semi-rural and don’t allow extra housing there. With policies like this even low-population cities like Darwin and Hobart can have a housing crisis!

    The first four points will choke-off all avenues of extra housing supply, so now let’s increase the need for extra houses – one house per family – by increasing the number of families.


    In 20-30 years they will leave home to start extra families.


    Why not increase the immigrant intake to record numbers?


    This will result in a declining number of people per household. We need more dwellings for a given number of people.

    Now with the supply of extra houses choked and the need for extra houses increased, price will race upward, as the poorer families are priced-out of housing. Now let’s goose the price even more with idiotic economic “demand side” techniques


    Instead of paying off a $100,000 house at 13% interest, why not service a debt of $500,000 at 7%. Why not use 80% of two incomes and eat poverty food for the rest of your life?


    It won’t create a single extra house, but it might drive existing house prices up.


    With prices racing up, beyond the reach of first home buyers, give more money to those people most capable of driving prices even higher. Use government tax money to encourage rich people to borrow money and buy existing housing to rent-out to poor people. We can pretend that this creates extra cheap housing and is good for the poor people.


    Improper to include in the list of 10, but it doesn’t hurt to mention it.


    Poking Demand and Choking Supply

    Government has done something very bad to the supply and demand of starter homes which has led to outrageous prices of starter homes, and supported much higher prices of better homes. In short, government has poked the demand and choked the supply of starter/marginal/extra homes.

    Poking Demand:

    * Government brings in many immigrants

    Choking Supply:

    * Government refuses permission to build extra housing on the fringe or extra units in the city, and new cities
    * Government adds taxes, charges and levies to extra housing
    * Government requires onerous compliance with regulations
    * Government creates delays in approving dwellings.
    * Government neglects transport and other infrastructure which reduces the area in which well-located and well-serviced homes can be built

    There is much debate on which of the five chokers (refusal, taxes, compliance, delays, neglect) is the biggest and baddest. Interestingly, if refusal is the big one, then lowering taxes will give a windfall to developers, whereas if refusal is a small one, then reducing taxes will cause a drop in prices. This debate is fascinating from an academic point of view, but rather pointless if the aim is to solve the housing crisis.

    It is like watching a man being attacked by five dogs and debating which dog has the bigger bite. Far better to chase off ALL the dogs and save the man.

  2. David V: Question: Could almost the same be argued for California? New Zealand? What about other cities/countries? Japan perhaps? I heard Japan had this amazing boom in the 80’s, and they have even more people with even less space.

    However…that is not to suggest that your points are invalid. Not at all, they are relevant. I don’t necessarily think that the conclusion is valid, thats all. People can’t buy $500K houses if banks won’t lend that much money. And even if the banks will lend that much, people can’t pay off the loans if the interest rates are too high.
    You need:
    – high wages
    – low interest rates
    – high credit availability, with low deposit ratios

    Personally I don’t think there is a housing shortage at all. Seriously. I think there is a shortage of AFFORDABLE housing. But not of housing in general. There are plenty of houses on a per person basis. It’s just that most people can’t afford them, and some people just sit on empty houses waiting for capital gains.

    Plus, since when has it been an affordable (and wise?) option to buy a house for one person to live in? I think Australian’s need to get a grip and realise that just because they ‘want’ a palace for themselves, does not mean they should have it (at least not without saving up for it first).

  3. Two more for the list:

    * Create a society where the only domestic industry is housing and the supply of land to build it on and have governments at all levels tax it to death with fees and charges because there is nothing else to extract tax from.

    * Raise a couple of generations of kids who would much rather sit on their bottoms in front of computer screens than get all hot and sweaty outside laying bricks.

  4. Plus tell anyone who should happen to have spare capacity in their main residence that if they rent it out they’ll have to pay capital gains tax on the place when they sell.

  5. “…so many…emails coming into the Money Morning mailbag telling us that property doubles in value every seven years is concerning.” Kris Sayce, 7th August ’09.

    Well, if you’re getting them, you’re certainly not printing them, Kris. Care to give us the references and dates, so we can see just who made these claims… and when?

    “That these subjective arguments are passed off as fact should be seen as the biggest sign yet that property is about to burst.” Kris Sayce, 7th August ’09.

    We’ve been reading this from DRA for well over twenty months now, Kris… and yes, I can supply the references and dates. We’ve also been advised that gold will hit $2,000 per ounce during the same period. And yes, I can supply the references and dates! ;)

    David V, in responding, at least presents some valid arguments to explain his interpretation. While he fails to include the investment and infrastructure factors in play, at least his response has some substance. Your contribution is just the tired rehash we’ve seen repeated by Keen, Haha and the rest of the property tragics for almost two years now… . Do some (Australian) research. Give us some meat with the tired old boiled potatoes….. :)

    Biker Pete, Fredricton, Canada
    August 7, 2009
  6. Another for the list, turn up at the Basel negotiations and plug for “safe as houses” capital concessions even though the reason détre for Basel was the Japanese bankers rigged their market so badly that Tokyo land values grew to be equal to a good chunk of the whole of the continental USA.

    It was the “why beat em if you can ape them” anglo Basel negotiating faction that eventually gave rise to many of those public servants subsequently finding a world of opportunity awaiting them in the banking industry or else in think tanks funded by the banking and real estate industries.

    And the response to this current mess will be a Basel III that will have a hard raw leverage limit that will leave Australian banks so far behind on the resulting capital adequacy standard that the required consolidation will cut the 4 pillars in half and even then the capital raising will dilute half the remaining stockholder equity.

  7. Japan? (Tokyo anyway)
    Even after the bubble burst ~20 years ago housing is still expensive, around 400~600k $aud seems the normal price. (for a place between 40m2~100m2). But it is affordable.
    How is that:
    – low interest rates: ~1.8%
    – long terms: 35 years
    – low deposits/no deposits
    – population density is still increasing (most of Tokyo is sprawl, not high rise, the new high rise developments are really noticeable)
    – The buildings are cheap, they build them really quick (homes anyway)

    Those are the normal terms usually advertised on the “mansion” (big ferro-concrete apartment complex developments) flyers that arrive in my mailbox. My quick research says an initial 3 year fixed rate loan is 1.85%. 35 year fixed loan is 3%.

    I guess Australian house prices are sustainable if interest rates go down to 1.85 % :-) That or Australians would like to squeeze themselves into 50m2 boxes on the edge of a big empty continent to make themselves feel the property wealth effect.

  8. @ Dave

    Great submission to the senate. Outstanding work with outstanding clarity of thinking. People of your calibre are rare and a minority.

    Will it be heard? No!
    Will it result in extra permits being released? No!
    Will it amount to anything? Yes – in about 10 years after the GFC has run through Oz.

  9. Hmmm… . Being in bilingual New Brunswick, practising my French on an hourly basis where my Franglais and Fringlish don’t cut it, I respectfully point out that you mean “raison d’etre”, Ross! :) So often we repeat what we hear without analysing where it comes from… or what it means… . ;)

    Biker Pete, Fredricton, Canada
    August 7, 2009
  10. Biker Pete we have also heard from some on DRA other dire predictions such as paper money would be basically worthless, the world was on the edge of a global depression and stocks would never recover :) Doom in downturns grabs peoples attention, stating the bleeding obvious does not :)

    And where have those “suckers rally” people gone ;) Yes, it has been a suckers rally alright..up 30%+ since March and still trending up ;)

  11. @ Dave

    I had time to reflect on your paper – 40 pages of good solid analysis. Two additional comments:
    1. Perception of shortage is enough to drive the price up. There is some data around to support the hypothesis that the shortage of housing in Australia is partly a figment of imagination, and partly a shortage in the desirable places. Once prices of desirable housing is driven up – it has knock on effect on all housing – estate agents make sure that happens.

    2. Despite shortage the prices would not go up if cheap credit was not available. In you fable of oranges, if the boys did not have cash of up to $10 (and had say only $0.20 – $0.50) the prices would have stabilised at around those levels.

    Still a very good piece. Congratulations.

  12. @dave

    Please examine the role of real estate agents in another piece.

    Here is a case of market intermediaries acting as market makers to the detriments of the markets, buyers, sellers and the society. Only people who benefit are themselves.

    Key questions:
    1. What are the consequences of their actions?
    2. How do they effect the markets, buyers, sellers, society and govt.?
    3. Which of the current practices are legal yet harmful?
    4. Is additional regulation required?
    5. This is the key question – How to make sure that they comply with the existing and any new regulations?

  13. Yes, it’s difficult to see ‘depression’ anywhere we’ve been so far, Greg… even in Britain, where we suddenly realised why so many Brits are fleeing extraordinary fuel prices, silly taxes, very high rents and crazy house prices… . The auto industry is alive and well across both continents, even if American vehicles are far fewer than during previous visits. Canada seems immune. Tourism is up, planes are packed. Hertz Rental was turning away scores of hopefuls when we went to pick up our car in Halifax. Many hotels have no vacancies… . I share DRA’s view that Americans will be shaken to the core by events to come, but we’re optimistic about the future of economies with immense mining and energy resources… and those actively supporting new technologies… .

    Biker Pete, Fredricton, Canada
    August 8, 2009
  14. Biker, the other day I spelt Veritatis Splendor – Veritas Splendour – it is one of my things and I scratch my head later .. We can disagree about Australian houses but the strawman doesn’t change the inevitability of the change to banking standards that kills off the Basel dwelling capital concession or the extremes of raw leverage for the AU 4 pillar banks by world peer standards. I typed “pier” here least night but I have revised.

    Greg, you may not recall but I have been fully invested in stocks since mid 08. +50% consumer staples bent toward ag (rather than Woolies etc), by a small no. of stocks in energy & pharma & from within the industrials those providing infrastructure and energy services. I also bought into Mt Gibson on the dip and as you may recall had the past uranium interests.

    Biker, last week I sold down the 15K of share placement offer from GNC and it returned +20K cash after a few weeks, and it lowered my previous ownership cost $3-4/share, the taxable capital gain was less than 2K and the residual shares are +8% on the new av cost of ownership. Now 5 figures wasn’t a huge stake pre the event on my part and the major stake holders have been shaken down to provide me this opportunity. The reason I mention it? It is no different to what you do with housing so I claim no high moral grounds when it comes to investment and ethical investment won’t move any market.

    I left Australia after becoming pretty much disgusted as a young man during the Keating era. I went to Germany where they have long and unshakeable house tennancy agreements (without consent from both sides), where the owner hardly ever cashes in his chips and most often leaves investment houses intact in their estates, where tennants will live 30 years undisturbed but will also have to front the cost of carpets and repainting etc every so many years and banks would only lend to an LVR of 70. I don’t think you are far from backing that sort of environment. Very different, very affordable in relative terms despite the Ruhr being the most densely populated region in the world – yes Greg even more than greater Tokyo. The one difference – no short term capital gain expectation.

  15. Ross, I have never moved out of stocks (been in them for around a decade now)and ramped up buying when the market went under 4800 last year. Sure it was not pleasant to see stocks head down to 3000 but I just kept buying small parcels. Buying in bear markets has never been my undoing, it has been failing to see when the market was a little too hot that has caused most of my grief. But I admit I am human and lack the ability to see into the future with any great accuracy, so I simply do not try and time the market. If a stock looks like good value I buy. (although I do of course take into account the wider economy etc)

    Biker, here in Japan apparently the sky is falling according to what you read in the western media but when a downturn hits some of the 300K robots are simply turned off :) The local domestic economy is doing it tough but for me this is a bonus since there are plenty of buy one get one free drinks offers :) Seriously though business is down in Japan but it is not anything like a depression. I wonder if people who use that term or the phrase “Great Depression” really understand what they mean?

  16. Good points all by David V.

    Add one more reason, another piece of sleight of hand by govt:
    Refuse to calculate the correct rate of inflation, ie. dodgify the CPI.

    Aust Bureau of Statistics simply achieves an inaccurate stat by not including the land component of housing in the CPI.

    This has enabled the commercial banks to flood the economy with their ‘debt money’ “at an annual rate of 15% per annum compounding for the last 12 years straight”* without the RBA lifting a finger to counteract this tendency.

    The last decade RBA calculates CPI rise at about 35%, land inflation says it is closer to 300%. How convenient. Bernie ‘the Ponzi’ Madoff would be impressed by this little scam.

    * How to inflate house prices – Don’t mention the debt:
    ” . . if all that debt were stripped away, irrespective of land shortages, property prices would be half to two-thirds of what they are today. ”If homebuyers don’t have money on loan from the banks, then they could not afford to pay the higher housing price – so the price would have to fall or the market would stagnate”.

    ”Why did we not index the rate of debt growth (15% per annum compounding for the last 12 years straight) to that of the country’s economic growth (less than 3% when the debt is stripped out)? Surely a lending system predicated on genuine national economic growth would be a far more practical solution?””

  17. Sorry greg, I wasn’t questionnning your position. I meant to address your point about the recent market rise and the sky not falling in ie: the DRA market prognosis. I feel that owning part of a company with a solid prospect of maintaining income in the real economy is a better defensive measure than other asset classes and especially compared to cash where the deflation event prompts low interest rate interventions and the inflation event erodes your principal in a blink. The capital appreciation opportunity will come from the need for investment institutions to realign their sectoral allocations. No more 30-35% for the XXJ and a big dip out of REIT’s.

    I am now bearish but it is more about the panic event and less about most of my long stocks. I do want to have cash available to buy and I don’t want to take too much money out of the market until the panic event hits. If it doesn’t hit I’m still in the market. My arbiter is the foreign hot money flow into AUD tempered or also ticked off by a parallel view of the USD-CAD crossrate as reflected in the currency markets.

    Most of my moves will be short with not too many changes to my long portfolio because it satifies me in terms of protection from the inflation event. I see the deflation event as having only being deferred and still expect that it will hit before the inflation event. Reserve bankers outside the UK are making out that that is incorrect. In the inflation event I will be buying inventories of essentials not marked to market (the inverse of this current period).

  18. Ross no apology needed..I understood your point. I was just outlining my views which seem pretty similar to yours. I buy into companies rather than trading “stocks” as such. However I was a silly lad and did dip my toe into some REIT’s from around 2006 because I wanted to diversify a little! (ouch!!)

    I am a little bearish about the Oz economy as things don’t quite add up. The stronger AUD will hurt export earnings and I suspect that at some point China will crank back on their stimulus programme and that would be an interesting development. We will also probably face a situation in Australia where unemployment will creep up as will interest rates so that is going to be a challenge for the RBA/Government.

    As I wrote in my last blog the only thing keeping the CPI down has been lower oil prices…but how long will that last for?

  19. Interesting points, Greg / Ross. While I’m bullish about Australian prospects, I have to agree that some things don’t add up, at present. I suspect that Ned’s comments about possible government interventions in November may affect what happens in the three sectors in which I’m heavily invested: property, super and cash. Despite positive Australian media reports I’ve read amping property in the last week or so, our own experience in property can be summed up as: 1.) property is flat at present; 2.) rents have peaked, at least for the time being; 3.) our costs have peaked, for the time being; 4.) despite 1 – 3, we’re making a good living from property, with no expectation (or need) of capital growth. That’s stating it all pretty fairly and succinctly. There’s no talk of property doubling every seven years, or claims that property only goes up… nor have we ever claimed this. Ross, my comments about your Franglais are a reflection of my own discomfort in responding to the occasional francophone who gives me a hard time over my Fringlish, here. I certainly copped a mouthful from one old angler on the Shediac pier yesterday, when I asked him if the fish he had just caught was a mackeral… . Fortunately most Maritimers are far too polite to comment on one’s French. :)

    Biker Pete, Fredricton, Canada
    August 8, 2009
  20. Greg: I hear you say repeatedly that the depression doesn’t seem like it is here or pretty much anywhere.

    I think what you need to understand is that these things do not happen overnight.

    Your seemingly short-term expectations of change appear to reflect the short-termist views that most westernised civilisations have adopted over time…probably due to electoral cycles, the noisy media, technology, and slightly hedonistic approaches to life in general.

    Share markets are not an economy – although they often act as a forward looking barometer for economic activity. If we start to think that an economy is bullish simply because a sharemarket is rebounding, then we are making an error of judgement.

    So, just as Bill and co. forecast the GFC ahead of its time (saving me personally from some heavy losses), they are also forecasting further dangers ahead. Picking the exact timing is virtually impossible, and if they were so adept at it, they would most likely be some of the richest people in the world. However that does not make what they say untrue or wrong. They call it as they see it. They see some fundamental issues with the way the economies of the world are functioning and provide their analysis and judgement. I find it really helpful.

    When the US went through the Great Depression, the stock market crashed and rallied for years. People were not beggars on the street or part of desperate unemployed worker gangs within months of the crash. No, that took years. We aren’t even a full year into the GFC, yet you are jumping the gun and calling the DRs analysis wrong by nature of timing.


  21. Pete, In the modern era (say the last 25 years) we have had so many calls about impending doom that it makes my head spin so what time frame roughly are you talking about? Making open ended calls about major market corrections is meaningless because we have been having them for centuries so if you wait long enough, one will come around :) I am not saying DR’s analysis is totally wrong…in fact a lot of it is spot on and that is why I visit the site. But DR suffers from thinking the world is ain’t. The American DR authors need to come to grips with the fact that the U.S. is in for a tough time but the planet will keep spinning.

    Thanks for letting me know things do not happen overnight..sort of a mute point to make to a long term investor especially one based in Japan.

  22. Is this the dr site or the ga (greg atkinson) site. seems like someone has an ego the size of tokyo. if greg is that smart what’s he doing spending all his time on this website. i don’t think i’ve come across a story on this site where he hasn’t had something to say.

  23. Greg, the end of the world (which, by definition, is a terminal event) happens to everyone at some point. So doom is a daily event. That’s a point worth thinking about on a daily basis IMHO.

    As for economic bad news, you’re right. By rights, though, the US should have tumbled economically years ago, but it has managed to lie itself out of trouble many times – the magnitude of the lie is now measured as multiples of GDP. The problem with trusting a system based on lies is that, at some point, people might wake up to those lies and stop believing them, which usually results in dramatic and rapid change. So the doomsday people have reasons for their pessimism.

    In any case, there are two things to consider with any economic analysis – what does it say about what should happen (what is right and wrong about the situation) and what, on the other hand, is likely to happen. Making money off it all is simply applying the knowledge in a balanced way. If you see a rally coming next week, then buy. If you see a crash coming next week, then sell. But the doomsdayers are nonetheless right – in the end it will all crumble, especially if you look at the fundamentals.

  24. Hi all I am in Brisbane bulimba and the realestate selling has had its best month June has recorded 6% rise in price in bulimba and surrounding areas. I know been looking since January.
    Renting on the other hand there is more available since January quite a few of the houses sold are now for rent. I know because if I don’t buy I am looking at future rentals to rent as not happy in unit. So I am following the property market.

    The aspects for future realerstate in general in oz is?

    If you are a blue collar worker all mentions about inflation, utility expenses, cost of living will always be hard that’s how it’s always been living from pay to pay.

    These people could be hit in the housing bubble in oz.
    The house price did let off steam in main land and rural for a year.

    I still don’t think rates will go up past 4.5 (looking at a 25 year loan) and will stay there for a short time and then go down from there on, as now every person is borrowing at there future limit.
    So the so called house bubble can be fueled for another 5 to 10 years.
    So at 2016 house prices could (correction of 50%) fall back to 2009 prices if house prices had increased in that time by 100% ;)

    I would like to see if there is a correlation of some sort that the more money you print the lower your interests rates go down towards 0.

  25. “DR suffers from thinking the world is America.. it ain’t. The American DR authors need to come to grips with the fact that the U.S. is in for a tough time but the planet will keep spinning.” Greg, 08/08/09

    That about sums it up. Shaping Bill’s many cogent DR observations about the US scenario to an Australian context has always presented a challenge to DRA.

    Rick, we’re also hearing reports of significant upward movement in Oz realty, but feel the reality remains a fairly flat scenario, at least in WA. Potential buyers are exercising a wait-and-see strategy, which may be partly based on the November tax review. It certainly is in our case. We had planned to build two more houses during our seven-month trip, but cut that back to one. It has been argued that ‘you can’t have a bubble if there’s an undersupply’. We’re tossing that concept around, while waiting to see what the Henry report recommends. I’m not sure that “…everyone is borrowing at their future limit… .” Banks would lend us many millions right now, but we’ll probably cut our projects back from 4-5 per year, to two; simply because it’s all the risk/work/diversion we need, at a time when confidence is a little shaky. We suspect that the eventual property jump will see us regretting scaling back (we’ve regretted not buying whole streets in the past!) but realty remains a rewarding hobby, many aspects of which my missus finds intellectually and aesthetically stimulating. While our offset accounts continue to grow, fed by rents, I’m happy to let her shop for (the very few land) bargains and endlessly sketch plans for clever new homes. Gives me some space and she occasionally gets to see a few through to fruition! :)

    Biker Pete, Fredricton, Canada
    August 8, 2009
  26. Greg: Yes, you are definitely right that doom-sayers will say doom, doom, doom and get ignored until finally one of their guesses becomes a reality – for which they claim credit.

    That would be like me saying “the market will definitely go down at some point”, which is pretty much a given, but by how much and when? You could say the same for the market going up, etc. And that is why I see less difference between doom-sayers and the optimists who think that “this is just a blip in the market, the trend is always boom, don’t miss out”.

    My point is that it does seem hypocritical to say that the DR denouncing a global recovery is wrong (as there has been a rally) – yet you dispute that the rally is a suckers rally, though it has not run even close to long enough to declare that we are in the clear.

    It comes down to what we believe the fundamentals are. So there is no point refuting the claims of the DR based on a little rally. That doesn’t tell anyone anything. As ‘investors’ or interested parties, I suspect that most of us care about the fundamentals of the greater economy, and particularly how this fits into a global puzzle.

    Calling impending doom or boom too early isn’t the issue if we are made aware of the risks ahead of time (much better than typical Gov. method of calling things far too late).

  27. There is an orchestrated play on this weekend taking down the Yen and Euro against the USD. Lets see what Goldman makes on its book out of this one on their next SEC report. AUD is stable holding up with the USD line.

  28. Ross my Japanese friends tell me that the Yen is always weak in August due to the Obon break. Have not seen the weakness myself yet but Obon is next week so let’s see what happens.

  29. Greg, no need to wait for Goldman’s SEC filing as their spokesman confirm their punt here (if you can call heads we win tails you lose punting)

  30. Thanks for that link, Greg. I’ll copy-n-paste it for study…. no mobile printer here. We’re forming some interesting ideas while travelling… mainly related to location/housing shortage issues. With the $200 billion estimated to be flowing from NW gas, I’d say we’re in for more-than-stable property values in WA. :)

    You may recall I’d posited doomngloom for Quebec and Newfoundland, before we left. May have been wrong on both counts. We saw mild prosperity across the former… and the latter province may be on the edge of its first real boom, thanks to gas deposits. Is BB right that Canada is a safe haven in a ‘depression’? Not convinced this is a global depression, mine dew… !! ;)

    The Henry Report may influence our next moves. And the recommendations may or may not be adopted, of course. I think we have enough in the three defensive asset classes to follow the summer annually… which agrees with my fat, lazy, old biker disposition! Looking forward to your feedback on my state of decrepit disrepair when we get down to Japan. :)

    Biker Pete, Prince Edward Isl., canada
    August 20, 2009
  31. Biker Peter the housing market in Japan is a lot different that in western nations and so I think you will have to arrive here with a fresh mind :) Let me know what dates you plan to be around as I might be able to catch up with you for a cold beverage. Are you travelling around Japan or just hitting the big cities/usual tourist spots?

    Greg Atkinson
    August 21, 2009
  32. September to December we’ll continue to cross Canada, Greg. Missus thinks we’ll zap down to Panama and / or Cuba early-mid December, when the freeze hits western Canada; then back to BC for Christmas. Our plans are pretty flexible, but I’m trying to write in a few days’ stopover in Japan around 6th-8th January. No plans to buy property there whatsoever! Would be good to share an ale with you.

    Biker Pete, Charlottetown, PEI
    August 21, 2009
  33. Possibly the best recent article we’ve read on the Australian property market, Greg. If this analysis of RBA policy and Ken Henry’s likely recommendations is correct (and it all makes sense to us… ) property will remain a very sound investment. Our criteria for location have changed markedly in the last five years… well before the demise of outer suburban living in the States.. and for totally different reasons: employment issues, land cost, site preparation cost, building cost, average annual earnings of tenants, rental vacancy percentages, proximity to the sea, proximity to schools and services, etc.

    Buying fuel here in Canada for less than $1.00 per litre, we can see some major hardship for a lot of Canucks if / when fuel rises beyond $2.00 per litre as in Europe. The decentralised living we’ve experienced travelling here has much to recommend it, but the impact of rising fuel costs would cause hardship for millions who, despite having moved towards smaller cars, still drive considerable distances to and from work twice daily… and think little of it at 96c/L. That, and the flow to larger regional centres by the young, predicts changing demographics we need to factor even more into our choice of location. More fuel-efficient cars may relieve the former issue somewhat, but the latter phenomenon is more complex. Driving into Charlottetown today, we actually heard two radio advertisements encouraging the young to return to their birth province, PEI. What criteria for housing investment (other than employment opportunities) does this suggest, we wondered… .

    Thanks for the link, which we’ve emailed to other family members and friends. :)

    Biker Pete, Charlottetown, PEI
    August 21, 2009
  34. Any recovery ie ability to stay overvalued will only be temporary courtesy of Rudd’s desire to get re-elected by diverting taxes to encourage the financially naive underclass to support incumbent property holders. This naive strategy will end in tears which is of course why Ruddd is watering down the Bankruptcy laws.


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